Secured card a good way to get started in the credit game

Posted on December 3, 2007
Filed Under Advice, Bad Credit, Secured Credit Cards | Leave a Comment

With the holiday shopping season upon us you can expect more people to turn to the Internet in search of bargains. But before you do, you really need to have a credit card.

Unfortunately, some people can’t get one either because they don’t have any credit or because they have bad credit. But there’s something you can do.

Many local banks offer something called a secured credit card, which offers the same safety and security as a regular credit card. That’s something you can’t always get when you pay with a check or debit card.

The amount you can charge on your credit card depends on how much you put into a savings account with the bank.

“You would secure your limit with a balance which is tied to your savings account,” said Kristel Johnson of Fifth Third Bank. “So, for example, if you wanted a $300 card you’d open a savings account to go along with your credit card and that would be the limit of your card.”

Johnson said the average secured card has a $500 credit limit, but it can go as low as $300 at Fifth Third Bank and as high as $5,000.

“The card is designed for you to pay off your balances every month,” Johnson said. “If you do pay your balances off every single month you won’t be charged any finance charges so it’s essentially like having a card a zero percent.”

If you don’t pay in full, the interest rate is more than 20 percent, so you really don’t want to charge more on the card than you can pay off every month.

“Normally what we’ve seen with customers who are just starting to build their credit – meaning they did not have any derogatory credit prior to having the secured card – it could take as little as nine months to upgrade to an unsecured card,” Johnson said.

Once you upgrade to an unsecured credit card, Fifth Third drops its $24 yearly fee and will start giving you reward points for using the card.

It will probably take longer than nine months to rebuild a bad credit history, but this is a good way to start.

The bank reports your payment record to the three major credit bureaus so be sure to develop a good payment history.

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